Volkswagen

The curse of Pischetsrieder

The wheels have started to come off the Volkswagen profit machine

IN MAY 1993, Bernd Pischetsrieder became chief executive of BMW. The Bavarian carmaker was riding high, its sporty saloons helping it to catch up with Mercedes-Benz, its German rival. The following January, Mr Pischetsrieder bought the Rover car group from British Aerospace. This was to prove a disaster. BMW failed to get a grip on the weak company; the acquisition cost it billions in losses and write-offs. Mr Pischetsrieder was eventually fired by an angry board.

Yet, in May 2003, he took over the top job at Volkswagen. Within a year, VW's fortunes have suffered their worst reverse since the firm's recovery in the early 1990s. Its latest figures imply a 95% fall in operating profits in the fourth quarter of 2003. The full horror will be spelled out on March 9th when the company will release its detailed results for last year. The market is braced for bad news. The main topic of conversation at next week's Geneva motor show is likely to be the “curse of Pischetsrieder”. The normally gregarious Mr Pischetsreider is expected to spend the show trying to avoid the serious press, which should add to the fun.

Yet, to be fair, although VW's problems are surfacing on Mr Pischetsrieder's watch, they mostly pre-date him. The plunge in profits owes much to a one-off charge to cover restructuring in Brazil. Like the rest of the world's carmakers, VW piled in there with huge investments, just in time for the economic collapse of 1999. Sales have proved disappointing, and the market shows no sign of recovering.

Elsewhere, VW's new $90,000 luxury model, the Phaeton, has failed to impress drivers. This model was created under Mr Pischetsreider's predecessor, as was the new Golf, which has also struggled unexpectedly, and caused even more financial damage to the company.

The first Golf hit the European market in 1974, creating a new market for small sporty hatchbacks. The latest Golf offers all sorts of whizzy new technical stuff, but looks boring and costs more than most of Europe's mid-market buyers want to pay. So VW, long envied by rivals for the price premium its models commanded, is now offering discounts on its core product.

There are other problems. VW has done well in America in recent years, but the fall in the dollar hurts. The company's sales used to account for half of the Chinese market. Now that the rest of the global car industry has piled in there (just like Brazil ten years ago), VW's market share has dropped to around one-third amid a price war.

The fact that the state of Lower Saxony owns one-fifth of VW's shares makes it politically awkward to fire workers or to shrink capacity when times are tough. So it needs huge sales to keep its huge factories profitable. The traditional way to get them has been to make many different models (sold as Seats and Skodas) using the same mechanical and body underpinnings. But lately the differently badged models clustered in the middle of the market have simply cannibalised each other's sales. VW still dominates the European market for middle-sized cars, but this segment is slowly shrinking in favour of new niches, such as off-road vehicles and the kind of small multi-purpose vehicles pioneered by Renault, with its Megane Scenic.

For years the Lower Saxony government's stake, and a special law, protected VW from takeover. But now the European Commission is pressing hard for this barrier to be removed, since it breaches European Union corporate law. If things do not start to improve, VW might become a takeover target.

In truth, the curse of Mr Pischetsrieder is to have taken the top job at a successful carmaker just as its business was taking a turn for the worse, with built-in flaws coming to the surface like rust on an ageing Beetle. He must now lift that curse, fast.